How are bitcoin balances calculated?
The Bitcoin blockchain ledger only keeps track of transactions. It does not keep track of balances. A bitcoin wallet is used to sum and track the balances of all bitcoin addresses in that wallet. It’s very possible to own multiple wallets with each wallet keeping track of different cryptocurrencies and their associated public addresses and balances.
A transaction is a transfer of cryptocurrency between two wallets using a public crypto address. The wallet contains the public and private keys needed to produce the public addresses and private signatures. To finalize a spend transaction from a bitcoin wallet, the private signature is used to sign the transaction which authenticates ownership of the bitcoins being sent.
Another huge convenience is that crypto wallets are designed to keep track of your crypto balances for the addresses inside the wallet. There’s nothing extra that needs to be done to determine your balances for a particular public address. If the address is in the wallet, the amounts associated with it will be included in the balance.
- The public bitcoin (crypto) address is shared publicly (like your bank account)
- The private signature is kept secret and used to sign transactions (like your signature on a check or debit card PIN).
- Public/Private keys, public addresses, and private signatures are all stored in the software wallet.
- Bitcoins or other crypto are NOT stored in a wallet. They only exist on the Blockchain Ledger and are identified by their public addresses.
- Only a wallet keeps track of your bitcoin balances.
For a more technical explanation of bitcoin balances read this Medium blog.